Search This Blog

Wednesday, December 02, 2009

Over the last weekend when world was celebrating the Thanks Giving holidays and Eid, one of the largest company of Dubai, Dubai World announced its inability to repay its debt to the tune of $30 billion. The report came as a surprise to many and almost everybody in the world expressed their opinion about it, primarily of concern and grief, but almost everybody seemed in the denial mode, rejecting any repurcussions on their own country's economy what so ever !! The question which surfaced in my mind was - Is it the beginning or is it over ?

Being part of this ecosystem for past 6 months, I always thought it was right there looming in front of everybody, but the reactions I read took me by a surprise infact! I always believed in simple mathematics and the power and sophistication it provides in carrying out most fundamental analysis. Within one week of landing in Qatar ( May 2009 for lesser informed), I had the opportunity to take a round trip of the city's most ambitious projects. I was defnitely impressed by the mushrooming of high rise towers and obscure buildings some planned and some in middle of no where !! A quick total of the various new buildings nearing completion/ completed in and around 4 prime routes of Doha, ie B, C & D ring road and Airport road, revealed me that more than 100 commercial buildings will be at Doha disposal in next couple of months. As I explored more into the city, I discovered the new and gliterati West Bay built on the lines of Manhattan, NY or Hongkong Islands ! Doha has one of the longest corniche in the region and at its tip lies the melting point of Middle East meets West the West Bay !! The skyline of West Bay has undergone a sea of change in past 5 years or so. So coming back to mathematics West Bay adds another 50 odd high rise towers and a dozen more hotel buildings. Most of the high rise towers in West Bay are designated for commercial/ office space of hotel purposes.

Now lets analyze the population growth in Qatar. The population of Qatar as per 2004 census was 750,000 and 2009 estimates are 1.4 million. Discussion with friends and old collegues revealed that back in 2004 also almost 50% population was of expats working in various Q companies ( Q - P, Steel, Cement, Fertilizer) and other Oil & Gas related companies ( Shell, Exxon, Schlumburger etc). So for sake of simplicity we can consider 350,000 to be real local population and another 350,000 as expats. Assigning a 5% ( which is almost 4 time that of India and more than any other country in the world) growth rate of local population we arrive at apprx 425,000 as the local population in 2009 which implies expats population to be 1 million. Whoosshh !! So the expat population has increased almost 3 times in 5 years...now thats big and what are these guys doing ?? Construction and related indsutries of course !! The output of basic Q industries has definitely not tripled during this duration and so we can safely conclude that the huge population bust is not sustainable and an abbreation ! So what will happen once the projects will come to a standstill ? Perhaps that's an extreme scenario but considering the increasing number of 'For Rent' hoardings in Qatar these days, something is definitely more than fishy !!

If we analyze the situation in more macro context of entire GCC, the situation will appear ever more scary !! A bird's eye view of the GCC countries like Qatar, Dubai, Abu Dhabi, Kuwait, Saudi Arabia and Oman to certain extent will portray the picture of war like situation !! In several pockets amidst deserts and oil rigs and huge fleet of towers and mega structures is appearing. Fortunately the construction industry does not create any additional problem of air/ water pollution or ozone depletion, hence no visible effects in the air/ water or ambience in general. And hence the massive constrution sites remain unnoticed and slowly people and government start getting used to it. Temporarily these massive construction sites generates enormous economic activity, movement of human beings, of goods and services and all of a sudden ( or gradually depends upon your frame of reference) the population, the GDP, the economic activity, the consumer spending etc starts increasing. So looking at all these indicators in short term, the economist, the governemt starts feeling good about the economy, the HNIs tends to invest more and not so HNIs in their desire to become HNIs overnight, starts borrowing. The banks in this part of the world are largely directly or indirectly governed by the governement/ the Kings and the Queens ( no we are not talking about fairy tales, but the actual real life kings and the queens) !! So if a HNI or not HNI is supported by a clan/ royal family due to whatsoever reason, is able to convince the bank about the economic viability and very high ROI of the project and hence the money flows into the system, infact the system is flooded with money supply. This has been the broad story of the GCC in past 5-6 years. The enormous money supply, lack of transparencey and accountability brings with it the problem of corruption and slowly inefficiencies creeps into the system.

The two basic forces of nature The Fear and The Greed comes decides the way the economy and the market will move in the future. What will happen to the high rise and the megastructures 10 years down the line is the question to ponder about. Perhaps the easy availability of oil money, another oil boom cycle of couple of years will wipe away the losses from the balance sheet of the government and the banks, perhaps some the buildings will be demolished to create some more parks or playing spaces and so the wheel of life will keep on rotating.